Apart from the 10 per cent surcharge on the highest tax bracket and higher excise/customs duty in select items, given that the tax structure has been broadly unchanged, these targets are dependent on a pick up in growth.

The three things we were looking out for in the budget were steps towards fiscal consolidation, measures to incentivize growth and focus on capital raising. In this context, the budget has partially delivered. (1) Fiscal Consolidation — More than delivers on FY13 and promises a lot for FY14 (with some risks), but overall is a key plus. (2) Growth — It disappoints. While measures such as the 15 per cent investment allowance, additional tax breaks on housing loans are positive, they are not enough to revive growth. (3) Capital Raising —A little bit. The budget has liberalized savings for the small investor, proposes inflation —indexed instruments and takes steps towards deepening capital/bond markets.

Taking a closer look at the budget arithmetic, we find it a tad optimistic. The FM did keep his word on fiscal targets, with the deficit in FY13 coming in at 5.2 per cent, marginally below his 5.3 per cent target. This was in line with expectations, largely due to expenditure compression (plan exp at 4.1 per cent v/s budget rate of 22.7 per cent) and the usual deferment in fuel subsidies. Going forward for FY14, the budget arithmetic is based on nominal GDP growth of 13.4 per cent, total receipts of 23.4 per cent and expenditures up 16.4 per cent — all of which we believe are optimistic.

Starting with revenues, the budget has estimated a 19.1 per cent increase in gross tax collections (corporate 16.9 per cent, income 20.5 per cent, excise 14.9 per cent, customs 13.6 per cent and services 35.8 per cent). Apart from the 10 per cent surcharge on the highest tax bracket and higher excise/customs duty in select items, given that the tax structure has been broadly unchanged, these targets are dependent on a pick up in growth. Further, the overall revenue estimates are dependent on (1) A Rs 558 billion divestment target and (2) Telecom revenues pegged at Rs 400 billion.

These are dependent on market conditions. As regards expenditure, the budget has estimated a 16.4 per cent rise in expenditures led by a 29.4 per cent rise in plan expenditure and a 10.8 per cent rise in non-plan expenditure. Key points to note (1) A 10.3 per cent contraction in the subsidy bill. This appears conservative as of the total outlay of Rs 650 billion on fuel subsidies; arrears for FY13 stand at Rs 500 billion. (2) Similar to FY13, plan expenditure could once again get the axe if the govt is to adhere to its fiscal targets.

In conclusion, the FY14 deficit of Rs 5,425 billion or 4.8 per cent of GDP is in line with expectations of the FM likely to stick to his fiscal consolidation plan. Consequently, the gross and net market borrowing program of the govt stands at Rs 6.2 trillion and Rs 4.8 trillion.